When comparing term and whole life insurance, we generally recommend term life insurance for most people.
Life insurance is meant to protect a family financially after a death. It’s not primarily an investment vehicle, and for most people it isn’t the best investment tool, though it can make sense in some situations.
For the majority of families, term is the right pick.
Life insurance protects against the loss of a life, while investment accounts are designed to grow wealth.
That said, whole life insurance does have a place. It can make sense for people who are:
- Very risk averse
- In a strong financial position and looking for another place to store cash
- Planning for legacy and estate strategies
However, trust planning is often a more effective way to move money tax-free, depending on the goals involved. A future post will cover that topic in more depth.
The overall advice is simple:
Use life insurance for its intended purpose: protection. An unexpected death should not leave a family financially stranded. For most people, buying term life insurance purely for that purpose is the most efficient and cost-effective solution.
While whole life insurance can be appropriate for certain individuals, the vast majority of people should start by looking at term life policies and building a broader financial plan around that foundation.
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